REFORMING INSURANCE LAW: - Law Commission

increases in the standard rate of 1% above base where the insurers’ conduct merits such
increase. 425 Late payment is known to be a matter of concern for the Law Commissions.
8.13 The Australian response to this is only partially formulated. The ALRC, 426 having noted
that the English Law Commission had recommended only the payment of interest in respect of a
late claim, 427 adopted an interest approach: “An obligation should be imposed on an insurer to
pay interest from the date on which a claim should reasonably have been paid. The rate of
interest should be prescribed by regulation and should reflect commercial rates”. 428 By this
recommendation the ALCR sought to produce equivalence between those cases in which the
assured took his case to court (where he would generally be awarded interest) and those cases in
which he accepted payment (in which case there would be no interest payable). It was not
suggested that damages would be awardable for late payment, and the award of interest at
commercial rates was itself thought to be an innovation given that State law at the time did not
require payment at commercial rates. The ALRC recommendation was duly implemented by s 57
of the Insurance Contracts Act 1984. 429 Simple interest 430 is payable at a specified rate for the
period commencing on the day from which it was unreasonable for the insurer to have withheld
payment 431 and ending on the earlier of the day of actual payment or the day on which payment
was sent by post. The current rate is 3% above Treasury Bond yield. 432 The provision overrides
other legislation on the payment of interest generally. 433 In applying s 57, the question of what is
unreasonable is to be determined on an objective basis, and although there is a presumption that
interest will run from an early date taking into account the period for reasonable consideration
and investigation of the claim, 434 the conduct of the assured may justify a later start date where,
for example, there is a reasonable suspicion of fraud and investigation is required 435 or where the
assured has himself been guilty of delay. 436
425 See: Kuwait Airways Corporation v Kuwait Insurance Co SAK (No 3) [2000] Lloyd’s Rep IR 678; Adcock v Cooperative
Insurance Society Ltd [2000] Lloyd’s Rep IR 657; Hellenic Industrial Development Bank v Atkin, The
Julia [2002] EWHC 1405 (Comm); Quorum AS v Schramm (No 2) [2002] Lloyd’s Rep IR 315.
426 Paras 319-324.
427 Payment of Interest, Law Commission Report No 88 (1978).
428 ALRC 20, paras 323 and 324.
429 As amended. See Sutton, paras 15.123 to 15.130.
430 It is unclear whether compound interest can be awarded: Treasury Review II, 2004, para 6.24. The 2007
proposals for legislative reform do not pick up this issue.
431 See: Einfeld v HIH Casualty [1999] NSWSC 867; Max Hams v CGU Insurance Ltd [2002] NSWSC 843;
Suncorp Metway Insurance Ltd v Scarf [2003] NSWCA 185; HIH Casualty & General Insurance Ltd v Insurance
Australia Ltd (No 2) [2006] VSC 128.
432 Insurance Contracts Regulations 1995, reg 32.
433 Mann, para 57.10.1, Sutton, para 15.124, discuss the history of the relationship between s 57 and State legislation
on interest.
434 Zurich Aust Insurance Ltd v Fruehauf Finance Corp Pty Ltd (1993) 7 Anz Ins Cas 61-177; Bankstown Football
Club Ltd v CIC Insurance Ltd (1997) 187 CLR 384.
435 Settlement Wine Co Pty Ltd v National & General Insurance Co Ltd (1994) 62 SASR 40
436 Sun Alliance & Royal Insurance Australia Ltd v Switzerland Australia Ltd (1996) 9 ANZ Cas 61-353. Treasury
Review II, 2004, para 6.28, rejected a fixed period after which interest should be payable, preferring the trigger date
for interest to be determined on the facts of each case.
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